A formal process to increase the rent will make the process easier and ensure that everyone involved is on the same page.
As a landlord, you will inevitably have to increase the rent over time. However, there are certain rules and procedures that need to be followed.
You need to understand when and how you can legally implement a rent change, what to do before an increase in rent, and of course how to write and send a rent increase letter.
Generally speaking, landlords can increase the rent when the current lease comes to an end, although there are a few exceptions such as if the rental property is in a city, state or jurisdiction with rent control laws, or if the lease included a clause that stipulates a rent increase during the lease term (note that this is not commonly allowed).
If your tenant is on an annual lease, landlords will have to wait until the end of the tenancy before increasing the rent. You will want to inform your tenant of the rent increase and give them plenty of time to decide whether to accept it. Often this means informing them of the rent increase when you send a lease renewal notice.
If the tenant is on a month to month lease, most states require that the landlord give the tenant at least 30 days’ notice before the rent increase.
On average, landlords increase around between three and 5% per year. However, that may not accurately reflect the current market. For example, many regions in the US in 2021 saw higher rent growth than usual with some landlords increasing rents year-on-year but over 10%.
Other areas, however, have experienced year-on-year decreases. So before implementing a rent change, landlords should use resources like Rentometer or Zillow rent estimates to perform a comprehensive market analysis of like rentals in their area. This will allow you to determine if a rent increase is viable and if so, how much it should be.
Landlords with long term leases of six or 12 months will need to wait until the end of the lease before implementing a rent increase. At the end of the lease term, landlords should send a lease renewal letter to the tenant which will include the overall rent increase amount. This will allow the tenant to decide whether they should stay or if they want to find alternative accommodation.
A lease renewal notice can include the rent increase and should be sent out around 90 days before the end date of the lease.
Any rent increase needs to be fair and reasonable based on the current local rental market. If the rent is increased too much, the landlord may risk losing a perfectly good tenant. If it’s too low, they risk leaving money on the table.
Additionally, high rent increases could be deemed illegal, especially in cities and states with rent control laws.
State landlord-tenant laws differ in regard to how much notice the landlord needs to give their tenant. As a general rule of thumb, landlords should give at least 30 days’ notice to tenants on a month-to-month lease and 90 days’ notice for longer-term leases.
The notice should be given to the tenant in writing. You’ll want to check your local and state laws to determine if there are any specific delivery requirements, such as delivery by certified mail or in person.
Your rent increase letter should contain the following details:
Some landlords also include a quick summary as to why they are increasing the rent. Being open about the market comparison you undertook can help with tenant retention.
If the tenant accepts the rent increase then the landlord will want to amend the existing lease agreement or create a new lease agreement which both parties will then need to sign.
Additionally, an increase in the rent might also increase the maximum deposit that you can collect. Some landlords at this stage also ask for this additional deposit to be secured with the existing deposit amount.
If the tenant does not agree to the rent increase then the landlord may want to confirm with a notice of non-renewal of the lease. This provides additional documentation, evidence and confirmation that both parties are fully aware of the lease end date and the date the property must be vacated.
Having a fair market rent is essential for investors so they can ensure they have the funds to keep the property well maintained, attracting great tenants and ensuring a high-quality standard of living for them.
A formal process for increasing the rent, with documentation and evidence will make the rent increase process easier and ensure that everyone involved is on the same page.